How Testing Your Business Idea Can Save You Millions

Photo Credit:  Holy Kaw

Photo Credit: Holy Kaw

As many entrepreneurs and investors learned during the first dot com boom (and subsequent bust), it often makes sense to test your idea before investing thousands and often millions in a new idea. Yet entrepreneurs and companies continually launch new businesses and products without knowing a few key pieces of information; Is there demand for my product? How big is the potential market? Who is my target customer? Testing an idea or new product before going to market with it has been a tactic employed by marketers (not all of course…) for what seems like eons, but the topic of testing warrants further discussion given the rise of new testing methods. Let’s consider 4 such ways to test an idea or product including both traditional and new methods:

  • Focus Groups: One tried and true method of gaining feedback and input regarding a new business or product idea is to conduct focus groups. Focus groups involve pulling together a group of customers (or potential customers) with the goal of gathering qualitative feedback. Given the small number of participants in a focus group, it is often more difficult to gather quantitative data like you can with surveys. Focus groups are employed frequently by brands such as Coca-Cola and Proctor & Gamble. Our team has facilitated focus groups on behalf of Neutrogena, Gap, and Harrah’s. Big brands have a built-in ability to gather throngs of passionate followers, though it often requires some sort of payment or company discount to gather a broad set of customers and/or prospects.
  • Surveys: In order to gather quantitative insights (e.g. x% of my target customers would buy my product at $y), surveys are often employed. The web, including sites such has Survey Monkey and Zoomerang, has made it extremely easy for companies both big and small to launch a survey. That said, small companies often will need to get creative in terms of finding people to survey. This often involves partnering with a related company or advertising an incentivized survey on the web. There are many ways to go about this, but those are a few to consider.
  • Competitive Research: One easy way to determine if there is a market for your product or service is to assess the size, growth, and profitability of your potential competitors. This can be done by using an array of online tools such as HooversNexis, and Factiva. Finding information about publicly traded companies is straight forward, but gathering similar data about private companies (especially small ones) can be a real challenge. We have heard of guerrilla tactics employed by start-ups such as posing as potential customers to gather key insights. We are not advocating this, but the point is to get creative in finding information about companies and using it to build a financial model for your business.
  • Online Testing: Testing your ideas online by first using AdWords and dedicated landing pages is one of the most powerful idea validation concepts available today. Exact processes vary but they typically involve a 5-step approach: Develop a New Idea (or build on an existing idea), Build Your Test Website, Send Customers to Your Test Website, Analyze Test Results, Make a Go/No Go Decision. The process is easy to follow and will allow you to get a true “intent to buy” read from real customers. What's more, as this process has grown in popularity and effectiveness, so too have the number and quality of services addressing this need. Check out Javelin as a good starting point. 

Good luck and remember that it doesn’t take a huge commitment of time or money to determine upfront if your idea/business/product has potential to succeed.